Check your answer
Write your response and explain your reasoning.
Northstar owns an item costing $8,400. Its applicable US-GAAP measurement test produces a supported $7,600 comparison amount at year-end. Prepare the write-down, carrying-amount rollforward, statement effects before tax, and later basis conclusion.
A separate contract requires 600 units at $20, or $12,000. The executed agreement is firm and uncancelable. Northstar has not hedged it. Control has not transferred at year-end. Supported measurement under the applicable inventory loss method is $10,800, and no other adjustment applies. Record the reporting- date result. Then assume the goods transfer for the contracted amount and prepare the acquisition entry without duplicating the loss.
Use ASC 330-10-35-17, ASC 330-10-35-14, and the transition-aware disclosure paragraph at ASC 330-10-50-5.
Compare your reasoning with the worked answer
The owned item has an $800 write-down: $8,400 cost less the supported $7,600 comparison amount. Debit the applicable inventory loss or cost account and credit inventory or the approved valuation account for $800. Inventory, pretax income, and equity fall by $800 before tax. The supported $7,600 becomes the year-end US-GAAP cost basis for later accounting.
The future goods are not inventory before transfer. The separate contract is firm, uncancelable, and unhedged, and the supplied comparison amount is $10,800. Record the $1,200 net loss under ASC 330-10-35-17: debit loss and credit purchase commitment liability.
At delivery, debit inventory for $10,800, debit the commitment liability for $1,200, and credit accounts payable for $12,000. This entry records the acquired goods and releases the existing liability without repeating the loss. Confirm the effective disclosure requirements separately.